The personal finance world is full of inaccurate information which can easily stand between you and financial success. To be able to make informed financial decisions, you need to be aware of the top money myths people fall for. Below are popular money myths as well as the truth behind each myth.
Myth 1: Cash is King
This myth is the oldest and most popular of all money myths. The myth simply implies that it is better to pay for things in cash rather than taking out a loan or using debt/credit cards. Although there is some truth to this myth, it’s not always wise to use cash over debt. For instance, credit card payments offer benefits which aren’t available to cash buyers i.e. fraud protection, extended warranties, additional insurance, etc. Credit cards also tend to be safer than cash. For instance, you can cancel a stolen credit card. It’s almost impossible to recover a lost wallet with cash. The myth ”cash is king” therefore applies on some occasions only. You should decide if you will use cash or debt/credit cards depending on factors such as cost while considering other factors such as convenience and safety.
Myth 2: You can never go wrong investing in Gold
There is also this misconception that gold always increases in value no matter what. This couldn’t be further from the truth. Although the value of gold has risen more than it has fallen since time immemorial, there are times in history when the value of gold has fallen. Gold isn’t, therefore, a 100% safe investment as people are made to believe. It’s perfect during times of economic uncertainty. However, it is highly volatile during stable markets. You shouldn’t, therefore, lose sight of the fact that every investment carries some risk.
Myth 3: Two incomes are always better than one
Although it is always good to have more money coming your way, what really matters is how much money you keep. Unless you and your spouse spend less than you earn, you will never gain financial independence. The key to getting ahead financially is spending less and investing more. Having more income is great because it can easily raise your standard of living when your spending, however, if you aren’t saving and investing anything every month, you and your spouse will have a hard time making gains where it matters most.
Myth 4: Buying/owning a home is way better than renting
Owning a home has for a long time been equated to success. Although buying a home has many benefits, it’s not always better than renting from a financial standpoint. Renting is better when you are young. Renting also offers you more flexibility. Renting is also cheaper in the short term when you consider the total cost of long-term mortgages as well as the opportunity cost i.e. the investments you forgo servicing your mortgage. You can make a lot of money channeling the money you would have otherwise paid as mortgage payments to investments like stocks. Although your home can appreciate in value over time, it’s not always wise to buy a home at the expense of other investments.
Myth 5: You need to be rich to invest
Many people have this notion that all investors are rich. This isn’t true. Anyone can invest. There are plenty of investments that require very little money. For instance, you don’t need a lot of money to start investing in stocks. Although having money gives you an outright advantage given the law of large numbers (i.e. the more money you have, the more you make), there are plenty of investment instruments that you can consider. Furthermore, you can always form investment groups with like-minded people to raise enough capital to participate in capital-intensive investments.
Myth 6: Credit cards are great sources of emergency funds
This is another myth you need to forget immediately. Many credit card companies market credit cards as great sources of emergency cash. Payday loans are way better. Instead of applying for credit cards, you are better off building an emergency fund. Eventualities such as accidents and unemployment can disrupt your lifestyle drastically. In such a case, your credit cards won’t do you any good. You need to have at least six months living expenses to find a new job or recover from a typical injury. Credit cards can’t last that long. Furthermore, it very expensive to get credit cards or any other kind of debt or loan when you don’t have a job.